Abiy was honoured "for his efforts to achieve peace and international cooperation, and in particular for his decisive initiative to resolve the border conflict with neighbouring Eritrea," the jury said.
The announcement of Abiy as this year’s Peace laureate was made in Oslo on Friday morning.
The award of the honour to Abiy means that Swedish teenager Greta Thunberg, who had been the bookmaker’s favourite to receive the honour, misses out.
In a little more than a year, the young climate activist has galvanised millions of young people around the world to take part in demonstrations to raise awareness for action on climate change.
But the Nobel Committee opted to give the peace honour to Abiy, who has had a major impact on resolving regional conflict.
In an interview with Swiss broadcaster RTS in August, Thunberg stressed that while the award would be "a recognition for this movement," she and her supporters weren't "doing this to get awards and prizes."